Air Canada Plans Fleet Shake-Up In 2013

An arbitrator’s decision late last month on a pilots union contract is giving Air Canada a lot more flexibility in how to manage its fleet, with potential consequences for decisions on shifting and ordering narrowbody aircraft and getting rid of Embraer aircraft or other regional jets.

The arbitrator, compelled to select either management’s proposal or the union’s, selected management’s. One result of that decision, Air Canada executives say, is that it gives them more freedom on deciding the structure of the fleet.

The airline, for example, says it might gradually shift as many as 30 AirbusA319s and 20 Boeing 767s from its mainline operations to a new low-cost carrier subsidiary, which could start service next year. Many of those aircraft are coming off lease in the next 24 to 36 months, CFO Michael Rousseau says.

The low-cost carrier, which Air Canada has discussed previously, would be used to maintain or grow the airline’s service in leisure-heavy markets that the mainline carrier still serves, to restore service in leisure markets it was forced to abandon because of competition and its higher costs, and to create new markets. That is likely to include service to places such as Las Vegas, Florida, Mexico and the Caribbean, as well as some transatlantic routes, Chief Commercial Officer Ben Smith says.

The 20 767s would have been returned to lessors in coming years as the airline receives its 37 new Boeing 787 aircraft, so shifting them to the low-cost carrier will not necessitate any new orders for the mainline, the airline’s leadership says. But moving the A319s might.

Air Canada just started an internal review on how to proceed with a narrowbody replacement program to make its fleet more efficient, Rousseau says, and a shift of the A319 would mean reaching a deal for deliveries that start before the end of the decade of aircraft with similar seating capacity. The key question, Rousseau says, is how many narrowbody aircraft the airline needs to order.

The airline currently has 38 A319s in its 201-aircraft fleet and 30 767s.

It also has 45 Embraer 190 regional jets and 15 Embraer 175s, all of which Air Canada owns, but they could become a fleet restructuring casualty.

“They are not an optimal aircraft for our fleet,” says Calin Rovinescu, Air Canada’s president and CEO. Although he describes them as good aircraft, he says the airline is considering whether to get rid of them. All or some of the 175s could end up at regional carriers that operate flights for Air Canada, but the 190s would be too big for that under the scope clause provisions in the pilot contract and would just exit the fleet entirely, he says.

The airline also is considering whether to accelerate the retirement of Bombardier CRJ100 and CRJ200 aircraft operated by its regional airline partners, and use more larger regional jets, such as CRJ700s and 900s.

Air Canada executives emphasize that they still are working through the fleet plan, given that the arbitrator’s decision was less than two weeks ago, and that no decisions have been finalized. But they do expect to make some decisions soon.